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25 March 2011

No Equalization offsets for Quebec

The new offshore resource agreement between the federal government and Quebec is a significant step toward developing oil and natural gas in the Gulf of St. Lawrence.

As with the similar situation between Nova Scotia and Newfoundland and Labrador, another major step will be settling the interprovincial water boundary between Quebec and Newfoundland and Labrador.

What’s most interesting about the Laurentide Accord, though is the fact that it is modelled, generally, on the Atlantic Accord (1985) between Newfoundland and Labrador and the federal government or the similar Nova Scotia offshore accord.

The Quebec agreement doesn’t include a specific joint management board. Instead, it describes a transitional period in which major decisions will be shared between the two governments.

That period of equal management might actually last a long time. Section 4.1 of the agreement commits the governments to table legislation on joint management. But that must happen only two years after someone finds a commercially viable discovery. In the meantime, everything will be run by a both governments equally.

That’s a pretty sharp contrast to Newfoundland and Labrador where the provincial government has significant control over offshore resources.

There’s also a sharp contrast on revenue sharing. While both the Atlantic and Laurentide Accords give the provincial governments 100% of revenues from offshore resource development, Quebec won’t be getting any extra payments to offset drops in Equalization. in both Atlantic provinces, the provincial government set and collected all offshore revenues and in addition got 12 to 13 years of federal transfers to replace declines in Equalization.

If Quebec winds up with huge oil and gas money flowing in, you can watch its Equalization entitlements drop like the proverbial stone. That’s big news for the federal government. Quebec collects more in Equalization transfer from Ottawa than all the other provinces combined. Cut that out entirely or even cut it down significantly and the federal government will wind up with billions of extra cash in very short order.